How Tata & Birla are taking on e-commerce biggies with Tatacliq and Abof

The two traditional business houses have finally taken their businesses online but they will have to vie with more than 1,000 startups for customers.Shelley Singh | ET Bureau | August 30, 2016, 09:27 IST

The Tata Group followed suit in May 2016 with an e-commerce venture called Tatacliq that will sell lifestyle, apparel and fashion ware, and electronics.

Both groups have diversified businesses ranging from salt to technology to telecom to textile with a combined annual revenue of around $150 billion. Yet, given the frenzy e-commerce has created in India, their entry to a new, potentially huge source of growth was inevitable.

The rub is that they have entered a segment chock-a-block with more than 1,000 startups — muscled by around $12 billion of venture money — that are engaged in a frenzied battle for customers.

Some of these are big names — Amazon, the world’s largest e-commerce player, which has pumped in $5 billion into the India market, and Indian companies like Flipkart, Snapdeal, Shopclues and Paytm.

But late entrants in businesses have certain advantages: they know the competition and can press ahead with a different strategy. Which explains why Tatacliq and Abof (short for All About Fashion) are unfazed by the competition.

Joining the party

Why: Leveraging strengths in offline to build online playWhen: Tatacliq started in May 2016; Abof in December 2015

Prathyusha Agarwal, head of marketing, Tatacliq says less than 3 per cent of the business has gone online and there’s plenty of room to grow. "We are here at the right time."

The two groups have twin advantages — established brands and the network their various businesses provide.

Nikhil Ojha, partner, Bain & Company, a consultant, says competition is at the level of firms, not industries. "Just as not all traditional businesses houses will make a success of their e-commerce ventures, not all e-commerce ventures will make a success of their business ventures."

Praveen Bhadada, partner, Zinnov Management Consulting, agrees they are large offline players that control the supply chain. But online business are technology businesses and need different mindsets, he says.

Vijay Shekhar Sharma, founder Paytm, a mobile wallet to mobile commerce startup, says Tatacliq and Abof’s entry makes it clear that e-commerce is becoming mainstream. "But they can’t build technology companies with traditional mindsets. Traditional business houses are consumers of technology and not builders of technology and that’s lot of difference as e-commerce is a technology business."

Indeed, at Amazon, Flipkart, Snapdeal, Paytm etc, technology specialists comprise the largest teams, catering to millions of customers every second in real time.

Tatacliq, for its part, has a technology team of 50 of the total workforce of 180. It relies on 20 tech partners, including SAP and Adobe. Up to 300 people from Tata company TCS also supports the business. "Our antecedents are in retailing rather than pure play technology," says Ashutosh Pandey, CEO, Tatacliq.

Still, it remains to be seen if Tatacliq and Abof can make inroads into e-commerce. Here is a look at the two business models.

Abof: Online, but not a marketplace

Abof targets a niche set of customers — millennials. Abof is avoiding becoming a 'me too' due to the late entry of the company in e-commerce, according to CEO Prashant Gupta. That's not a bad idea given that the company is competing with 800 startups, including Myntra-Jabong, Voonik, StyleTag, Limeroad and private labels like YepMe and American Swan.

"It's not a winner-takes-all market — a few large players will emerge — but 800 is too many," says Gupta.

In the 10 months since launch, Abof has doubled gross merchandise value (the value of goods sold) to Rs 200 crore with about 2.5 lakh daily visitors. It has a 50,000 sq feet warehouse in Bengaluru and is opening another one in Delhi NCR. That pales in comparison with Amazon and Flipkart, both of which have more than 15 warehouses each.

Gupta is not worried though. "We won't be stocking say 20,000 shirts that the likes of Jabong have. We are a fashion store and not a fashion warehouse."

Abof has one good thing going for it. According to a recent Bain-Google study on e-commerce, 650 million people will be online in India by 2020 with about 20 per cent of retail sales happening online.

Abof, says Gupta, displays carefully curated fashion wear on its platform. "We are not a marketplace. Customer experience is a challenge on a marketplace."

Besides, Gupta believes millennials don't need a store network as they prefer to do things conveniently from their smartphones or desktops. About 40 per cent of the Abof business comes from private labels.

Abof limits the brands to what it believes attracts buyers. It uses artificial intelligence and machine learning software to understand buyer behaviour. It offers services like free on the spot alteration, where a designer visits the customer and helps with the fitting.

There is also a 3D trial room that allows users to visualise the garment on a customised avatar-type model and get the right size recommendations. "Less than 1 per cent of fashion wear is sold online," says Gupta.

Tatacliq: From bricks to clicks

Tatacliq is ramping up fast. The company is strengthening its online-to-offline model, which is its USP compared with marketplaces like Amazon, Flipkart, Snapdeal and Paytm.

Three new categories will be added — watches and accessories, kids wear and sunglasses — by September, taking its total categories to seven. Tatacliq is also tripling the number of stores to 2,000 where e-shoppers can return or exchange purchases made on its platform.

It is trying to integrate offline with online — the group already has Croma stores selling electronics and Westside selling fashion and apparel. "Omnichannel is a unique need in India," says Tatacliq CEO Ashutosh Pandey.

Now buyers will be able to shop and return, or exchange, either online or at these stores. "It's a buy online, pick in-store (BOPS) strategy. They are not strictly an online player. It's just an added window for them," says the head of a large online player who did not want to be named.

Competitors might play down the Tata Group's online foray, but it has a serious advantage over true-blue e-commerce players — deep pockets to build scale instead of knocking on the doors of venture companies for fresh funding.

The timing of the entry by the Tatas in e-commerce is good, says Pragya Singh, associate director, retail and consumer products, Technopak, a retail consultancy. "The dust has settled down post the funding squeeze (faced by many ecommerce players)."

Since the launch in May, Tatacliq says GMV and traffic have grown 30 per cent every week, but declined to share actual numbers. "We have created stickiness because about a third of orders are from repeat shoppers and the app has had more than 2 lakh downloads so far," says Pandey.

Besides the option of return and exchange, shoppers will also have an option to click-and-collect (buy online and collect the good in person) at 500 outlets, up from 150 at present. Tatacliq offers 400 brands, including 14 international brands. It sells global brands like Burberry, Jimmy Choo, Coach etc through a partnership with Genesis Luxury Fashion, a Delhi-based aggregator of international fashion brands.

About 27 per cent of the orders for electronic items are click-and-pick, where customers buy online and visit say, a Croma store to collect their order. For apparel, less than 10 per cent of the orders are click-and-pick, with customers preferring home delivery.

"In the first month of our operations, we have had a million unique visitors," says Prathyusha Agarwal, head of marketing, Tatacliq.

Tatacliq has a conversion rate (visitors to the website who end up buying) of 0.6-1 per cent, though for certain categories like smartphones, it's higher at 3-6 per cent. Online prices are aligned with offline retail, and discounts, if any, are similar across the two formats.

The challenge for Tatacliq is changing the mindset of the brick and mortar business. "Online is about speed and execution. E-commerce is not a salt or steel or car making business," says another rival.

But Agarwal is sanguine. "E-commerce is at a very nascent stage with just 30 million online shoppers (India has over 450 million internet users). We have huge room for growth."